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Cash, Receivables &

Marketable Securities
Cash, Receivables & Marketable Securities
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
CURRENT ASSETS (流動資産)
代表的な資産は
 Cash (現金)
 Marketable Securities (有価証券)
 Accounts Receivable (売掛金)
 Notes Receivable (手形)
 Inventories (商品在庫)
 Prepaid expenses (前払い費用)
1. Cash で重要なのは：
Definition, Cash Equivalents, Bank Reconciliation
2. Marketable Securities で重要なのは：
他社の株や社債を投資目的で購入している場合の会計処理です。特に株式の場合、カテゴリーは
特殊比率により 3 つあります。
 特殊比率 0~20%：このカテゴリーが Marketable Securities と呼び、Cost method で処理
します。Asset 1 でまさに学びます。
 20~50%：Equity Method (持分法), 税効果会計と連結の Topic で学習します。
 50%以上の比率：連結。Consolidations。
3. Accounts Receivable では：
Bad Debts Expense (貸倒費用) の計上法がポイントになります。
4. Notes Receivable では：
現在価値です。日本人受験生が苦手とする Topic です。でも大丈夫、僕がいるから。
5. Inventories では：
なんといっても Pricing でしょう。いろんな Method で 12 月 31 日の Inventory 残高を算出しま
す。
6. Prepaid expenses は Non-Factor だね！いくつか過去問題が問題集に出ていたりしますが、3
年に 1 回、1 問でるかな―?
総括：
CPA の試験では 1~5 が満遍なく出題されます。難しい Topic ではないのでグイグイ覚えていきまし
ょう。
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CASH
A. Definition
1. Cash on the balance sheet is that is &
and available to be spent in
2. Be careful of cash you can’t
Examples: a.
b.
c.
B. Cash Equivalents
Three-Month Rule: Highly liquid securities with an maturity of
_____________________ or less are treated as cash.
Examples: a.
b.
c.
C. Bank Reconciliation ― Primary area for exam questions
Work space and additional notes:
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MULTIPLE-CHOICE QUESTION 1
1. In preparing its August 31, Year 2 bank reconciliation, Apex Corp. had available the
following information:
Balance per bank statement, 8/31 $18,050

Deposit in transit, 8/31 3,250
Return of customer’s check for insufficient funds, 8/31 600
Outstanding checks, 8/31 2,750
Bank service charges for August 100
At August 31, Year 2, Apex’s correct cash balance is
a. $18,550
b. $17,950
c. $17,850
d. $17,550
Work Space:
Bank Balance, 8/31 $

Deposit in Transit
Returned Check
Outstanding Checks
Service Charges
Correct Cash Balance $
Additional notes:
Independently answer multiple-choice question 2.
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2. The following information pertains to Grey Co. at December 31, 20X3:
Checkbook balance $12,000

Bank statement balance 16,000
Check drawn on Grey’s account, payable to a vendor, dated and
recorded 12/31/X3 but not mailed until 1/10/X4 1,800
On Grey’s December 31, 20X3 balance sheet, what amount should be reported as cash?
a. $12,000
b. $13,800
c. $14,200
d. $16,000
(4827)
Cash in checking account $

Held check
Cash and cash equivalents $
Adjusting Journal Entry:

Cash
Accounts
Work space and notes:
Independently answer multiple-choice questions 3-6.
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MULTIPLE-CHOICE QUESTIONS 3 - 6
3. At October 31st Dingo Inc. had cash accounts at three different banks. One account
balance is segregated solely for a November 15th payment into a bond sinking fund. A second
account, used for branch operations, is overdrawn. The third account, used for regular
corporate operations, has a positive balance. How should these accounts be reported in
Dingo’s October 31st classified balance sheet?
a. The segregated account should be reported as a noncurrent asset, the regular account
should be reported as a current asset and the overdraft should be reported as a current
liability.
b. The segregated and regular accounts should be reported as current assets, and the
overdraft should be reported as a current liability.
c. The segregated account should be reported as a noncurrent asset, and the regular
account should be reported as a current asset net of the overdraft.
d. The segregated and regular accounts should be reported as current assets net of the
overdraft.
(3446)
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Items 4 and 5 are based on the following data:
Poe Inc. had the following bank reconciliation at March 31:

Balance per bank statement, 3/31 $ 46,500
Add: Deposit in transit 10,300
56,800
Less: Outstanding checks (12,600)
Balance per books, 3/31 $ 44,200
Data per bank for the month of April 20X7 follow:
Deposits $ 58,400
Disbursements 49,700
All reconciling items at March 31 cleared the bank in April. Outstanding checks at April 30
totaled $7,000. There were no deposits in transit at April 30.
4. What is the cash balance per books at April 30?

a. $48,200
b. $52,900
c. $55,200
d. $58,500
(0875)
Bank Balance, 3/31 $ 46,500
Deposits
Disbursements
Bank Balance, 4/30 $
Outstanding Checks
Book Balance, 4/30 $
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5. What is the amount of cash disbursements per books in April?

a. $44,100
b. $49,200
c. $54,300
d. $56,700
(9003)
Disbursements per Bank $
Outstanding Checks, 3/31
Outstanding Checks, 4/30
Disbursements per Book $
6. At June 30, Almond Co.’s cash balance was $10,012 before adjustments, while its
ending bank statement balance was $10,772. Check number 101 was issued June 2 in the
amount of $95, but was erroneously recorded in Almond’s general ledger balance as $59. The
check was correctly listed in the bank statement at $95. The bank statement also included a
credit memo for interest earned in the amount of $35, and a debit memo for monthly service
charges in the amount of $50. What was Almond’s adjusted cash balance at June 30?
a. $9,598
b. $9,961
c. $10,048
d. $10,462
(8106)
Unadjusted Cash Balance at 6/30 $

Check error
Interest income
Service Charge
Adjusted Cash Balance $
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DIRECT WRITE-OFF METHOD

A. Accounting for Bad Debts ― Two Methods
1.
2.
B. Direct Write-off Method
1. No entry for bad debts until customer
2. At default, the customer’s account is
Example Journal Entry
Year 1: Accounts receivable

Sales
Year 4: Bad debt expense
Accounts receivable
3. Theoretically, the direct write-off method is because of

the concept.
4. Acceptable under GAAP as long as bad debt expenses are
5. Material bad debt expense requires the
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ALLOWANCE METHOD
Allowance Method: A company will accounts receivable expected to become
bad debts and set up a for bad debts on the a
sheet.
Remember, there are approaches to the Allowance Method.
A. approach
B. approach
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Income Statement Approach
7. The following information pertains to Oro Corp:
Credit sales for the year ended December 31 $450,000

Credit balance in allowance for uncollectible accounts at January 1 10,800
Bad debts written off during the year 18,000
According to past experience 3% of Oro’s credit sales have been uncollectible. After provision
is made for bad debt expense for the year ended December 31, the allowance for uncollectible
accounts balance would be:
a. $6,300
b. $13,500
c. $24,300
d. $31,500
Work space:
Allowance Account
Additional notes:
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Balance Sheet Approach
8. Based on the aging of its accounts receivable at December 31 Terry Company
determined that the net realizable value of the receivables at that date is $190,000. Additional
information is as follows:
Accounts receivable at 12/31 $220,000

Allowance for doubtful accounts at 1/1 ― credit balance 32,000
Accounts written off as uncollectible at 9/30 24,000
Terry’s doubtful accounts expense for the year ended December 31 is:
a. $38,000
b. $30,000
c. $26,000
d. $22,000
Work space:
Allowance Account
A/R per books, 12/31 $ 220,000
A/R per aging, 12/31 (190,000)
Allowance, 12/31 $
Bad Debt Expense

Allowance
Additional notes:
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RESTORED ACCOUNT (RECOVERY)

Example: Written-off Account Later Collected
Allowance for bad debts 300

Accounts receivable 300
To originally write-off entry
Now payment is received for the account previously written off as a bad debt. Reverse the
original entry; record cash payment.

Allowance for bad debts 300
To reverse the original write-off entry
Cash 300
To record the payment received
Additional notes:
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Balance Sheet Approach
9. Inge Co. determined that the net value of its accounts receivable at December 31 based
on an aging of the receivables, was $325,000. Additional information is as follows:
Allowance for uncollectible accounts at 1/1 $30,000

Uncollectible accounts written-off during the year 18,000
Uncollectible accounts recovered during the year 2,000
Accounts receivable at 12/31 350,000
What would be Inge’s uncollectible accounts expense?

a. $5,000
b. $11,000
c. $15,000
d. $21,000
(9005)
Allowance Acct.
30,000
18,000
2,000
14,000
A aaaa plug
25,000
Bad Debt Expense

Allowance
Additional notes:
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10. At January 1 Jamin Co. had a credit balance of $260,000 in its allowance for
uncollectible accounts. Based on past experience, 2% of Jamin’s credit sales have been
uncollectible. During the year, Jamin wrote off $325,000 of uncollectible accounts. Credit
sales for the year were $9,000,000. In its December 31 balance sheet, what amount should
Jamin report as allowance for uncollectible accounts?
a. $115,000
b. $180,000
c. $245,000
d. $440,000
(5545)
Allowance Acct.
11. Hall Co.’s allowance for uncollectible accounts had a credit balance of $24,000 at
December 31. During the year, Hall wrote off uncollectible accounts of $96,000. The aging of
accounts receivable indicated that a $100,000 allowance for doubtful accounts was required
at December 31. What amount of uncollectible accounts expense should Hall report for the
year?
a. $172,000
b. $120,000
c. $100,000
d. $96,000
(4088)
Allowance Acct.
24,000
96,000
72,000
Aa aa plug
100,000 (given)
Additional notes:
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ASSIGNING, FACTORING & PLEDGING

ACCOUNTS RECEIVABLE
A. Pledging / Assigning Accounts Receivable: Company pledges / assigns the rights to its
receivables to a financial institution as security for a loan.
1. Assignment of accounts receivable normally is done with recourse, i.e., if the

customers default, the assigning company is still liable to the bank for the money.
2. Assignment usually is done without notification, meaning the customers don’t know
their debts have been assigned, and continue paying the company.
3. Must be footnoted.
B. Factoring Accounts Receivable: Receivables sold to a factor.
1. Without Recourse: If the customers default, the company that sold its receivables is
not liable to the factor for the money; sale is final.
Factoring Without Recourse
Cash XXX
Loss* PLUG
Accounts receivable XXX
* Almost always a loss, because the factor will give you a discounted price
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2. With Recourse: If customers default, the company that sold its receivables is still
liable to the factor for the money; sale is not final.
Factoring With Recourse
A/R factored / assigned XXX

Accounts receivable XXX
Additional notes:
Answer multiple-choice question 12
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Discounting Notes Receivable: Exchange a note receivable for cash
12. Rand Inc. accepted from a customer a $40,000, 90-day, 12% interest-bearing note
dated August 31, 20X7. On September 30, 20X7, Rand discounted the note at the Apex State
Bank at 15%. However, the proceeds were not received until October 1, 20X7. In Rand’s
September 30, 20X7 balance sheet, the amount receivable from the bank, based on a
360-day year, includes accrued interest revenue of
a. $170
b. $200
c. $300
d. $400
(0896)
Face amount of note $40,000

Add: Interest to maturity ($40,000 x 12% x /360) 1,200
Maturity value of note $41,200
Less: Bank discount ( x 15% x /360) (1,030)
Proceeds from discounted note $40,170
Less: Face amount of note (40,000)
Accrued interest revenue, 9/30 $
Receivable from Bank

N/R Discounted
Interest Receivable
Additional notes:
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Non-Interest-Bearing Notes (Seller): Interest must be imputed.
13. On January 1, 20X5, Elia Company sold a building which had a carrying amount of
$350,000, receiving a $125,000 down payment and, as additional consideration, a $400,000
noninterest-bearing note due on January 1, 20X8. There was no established exchange price
for the building and the note had no ready market. The prevailing rate of interest for a note of
this type at January 1, 20X5, was 10%. The present value of 1 at 10% for three periods is 0.75.
What amount of interest income should be included in Elia’s 20X5 income statement?
a. $0
b. $30,000
c. $35,000
d. $40,000
Seller’s Perspective
January 1, 2005:
Cash 125,000
Note Receivable [$400,000 x .75] 300,000
Building 350,000
Gain 75,000
To record the sale
December 31, 2005:

Note Receivable [$300,000 x .10]
Interest Revenue / Income
To record 12-31 interest
December 31, 2006

Note Receivable [$330,000 x .10]
Interest Revenue / Income
Total interest imputed in this note receivable is
Additional notes:
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MULTIPLE-CHOICE QUESTION 13 (continued)
Buyer’s Perspective
January 1, 2005:
Building 425,000
Cash 125,000
Notes payable [$400,000 x .75] 300,000
To record the purchase
December 31, 2005:

Interest expense [$300,000 x .10]
Notes payable
To record 12-31 interest accrual
December 31, 2006:

Interest expense [$330,000 x .10]
Notes payable
To record 12-31 interest accrual
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Non-Interest-Bearing Notes: Seller Side
Items 14 and 15 are based on the following:
On January 2, 20X2, Emme Co. sold equipment with a carrying amount of $480,000 in
exchange for a $600,000 noninterest-bearing note due January 2, 20X5. There was no
established exchange price for the equipment. The prevailing rate of interest for a note of this
type at January 2, 20X2, was 10%. The present value of 1 at 10% for three periods is 0.75.
14. In Emme’s 20X2 income statement, what amount should be reported as interest
income?
a. $9,000
b. $45,000
c. $50,000
d. $60,000
(4415)
January 2, 20X2:
Loss 30,000
Equipment 480,000
December 31, 20X2:

Note Receivable 45,000
Interest Income 45,000
($600,000)*(.75)*(.10)=$45,000
15. In Emme’s 20X2 income statement, what amount should be reported as gain(loss) on
sale of machinery?
a. $(30,000)
b. $ 30,000
c. $120,000
d. $270,000
(4416)
Independently answer multiple-choice questions 16.
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16. On January 1, 20X3, Mill Co. exchanged equipment for a $200,000 noninterest-bearing
note due on January 1, 20X6. The prevailing rate of interest for a note of this type at January 1,
20X3, was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of
interest income should be included in Mill’s 20X4 income statement?
a. $0
b. $15,000
c. $16,500
d. $20,000
(0888)
January 1, 20X3:
Sales 150,000
December 31, 20X3:

Note Receivable [$150,000 x 10%] 15,000
December 31, 20X4:

Note Receivable [$165,000 x 10%] 16,500
Additional notes:
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Non-Interest-Bearing Note: Seller side with an annuity
17. On December 30, 20X4, Chang Co. sold a machine to Door Co. in exchange for a
noninterest-bearing note requiring ten annual payments of $10,000. Door made the first
payment on December 30, 20X4. The market interest rate for similar notes at date of issuance
was 8%. Information on present value factors is as follows:
Present value Present value of ordinary
Period of $1 at 8% annuity of $1 at 8%
9 0.50 6.25
10 0.46 6.71
In its December 31, 20X4 balance sheet, what amount should Chang report as note
receivable?
a. $45,000
b. $46,000
c. $62,500
d. $67,100
(5544)
Chang Co. Note Receivable Journal Entry:

Cash
Note Receivable [$10,000 x 6.25]
Sales
例題
On December 30 of the current year, Bart Inc. purchased a machine from Fell Corp. in
exchange for a noninterest-bearing note requiring eight payments of $20,000. The first
payment was made on December 30, and the others are due annually on December 30. At
date of issuance, the prevailing rate of interest for this type of note was 11%. Present value
factors are as follows:
Period PVA of ordinary annuity of 1 at 11% PV of annuity in advance of 1 at 11%
7 4.712 5.231
8 5.146 5.712
On Bart’s current year December 31 balance sheet, the note payable to Fell was
a. $ 94,240
b. $102,920
c. $104,620
d. $114,240
(5/90, PI, #29, amended, 1045)
22
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Note Receivable with Unreasonable Interest Rates
18. On December 31, 20X1, Jet Co. received two $10,000 notes receivable from
customers in exchange for services rendered. On both notes, interest is calculated on the
outstanding principal balance at the annual rate of 3% and payable at maturity. The note from
Hart Corp., made under customary trade terms, is due in nine months and the note from Maxx
Inc. is due in five years. The market interest rate for similar notes on December 31, 20X1, was
8%. The compound interest factors to convert future values into present values at 8% follow:
Present value of $1 due in nine months: .944
Present value of $1 due in five years: .680
At what amounts should these two notes receivable be reported in Jet’s December 31, 20X1
balance sheet?
Hart Maxx
a. $9,440 $6,800
b. $9,652 $7,820
c. $10,000 $6,800
d. $10,000 $7,820
(2582)
Hart Corp. Note Receivable Journal Entry:
Note Receivable
Sales
Maxx Inc. Note Receivable:

Unreasonable Interest (10,000 x 3% x 5 yrs) $ 1,500
Principal 10,000
Maturity Value 11,500
Discount Rate x .680
Present Value $ 7,820
Maxx Note Receivable Journal Entry:

Note Receivable
Sales
23
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INVESTMENTS: HELD TO MATURITY

A. Held-to-Maturity (HTM) Securities
1. securities only (like bonds)
2. Management has both the and to hold the

securities to maturity
3. Classified (current or noncurrent) on balance sheet based on the

date
4. Carry on balance sheet at cost
a. Effective - Interest Method: Theoretically preferred
(1) Interest proceeds = stated rate x face amount

(2) Interest earned = effective yield x carrying amount
(3) Difference is amount of premium or discount amortized
Effective Interest Method Journal Entry:
Corporation A purchases bonds with a face amount of $500,000 and a stated interest of 9%
for $469,500 with an effective yield of 10%. Management has the intent and ability to hold
the debt to maturity.
December 31:
Cash ($500,000 x 0.09) 45,000
Investment in Bonds (PLUG) 1,950
Interest Income ($469,500 x 0.10) 46,950
To record annual interest income from investment in bonds
b. Straight-Line Method
(1) Interest proceeds = stated rate x face amount

(2) Premium or discount divided by remaining life of bonds
(3) Difference is amount of premium or discount amortized
(4) Interest income becomes a plug figure
24
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Straight Line Interest Method Journal Entry:
Corporation A purchases bonds with a face amount of $500,000 and a stated interest of 9%
for $469,500 with an effective yield of 10%. Management has the intent and ability to hold
the debt to maturity.
December 31:
Cash ($500,000 x 0.09) 45,000
Investment in Bonds [$30,500÷10] 3,050
To record annual interest income from investment in bonds
Additional notes:
25
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
INVESTMENTS: TRADING
B. Trading Securities
1. Investments in or securities held for the

purpose of in the near term
2. Classified on balance sheet as
3. Carried on balance sheet at
4. Unrealized gains & losses from a trading portfolio belong on
the
Trading Securities Example:

Security Cost Market, 12-31
A $ 8,000 $12,000
B 10,000 5,000
C 20,000 27,000
Investment A 4,000
Unrealized gain (I/S) 4,000
Unrealized loss (I/S) 5,000

Investment B 5,000
Investment C 7,000
Unrealized gain (I/S) 7,000
Cash 25,000
Realized loss(I/S) 2,000
Investment C 27,000
To record sale of Investment C for $25,000 in Year 6
5. Realized gains & losses always go to the
26
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
INVESTMENTS: AVAILABLE FOR SALE

C. Available-for-Sale (AFS) Securities
1. Debt or equity securities not classified as either HTM or

2. Debt is classified on by date
3. Equity securities are classified by management’s
4. AFS portfolio is carried on balance sheet at aggregate
5. Unrealized gains & losses from AFS portfolio go directly

to as an item of .
Available for Sales Securities Example: Year 5

Q $ 3,000 $10,000
R 5,000 15,000
S 7,000 1,000
Aggregate $15,000 $26,000
Market adjustment (B/S) 11,000

OCI(B/S) 11,000
To record year-end adjustments to carrying value, Year 5
On the December 31 balance sheet:
Available-for-sale at cost $15,000

Market adjustment 11,000
Aggregate market value $26,000
Additional notes:
27
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
Available for Sales Securities Example: Year 6

Q $ 3,000 $9,000
R 5,000 3,000
S 7,000 2,000
Aggregate $15,000 $14,000
OCI
Market adjustment
To make year-end adjustment to carrying value, Year 6
Market
Adjustment
11,000 On the balance sheet, end of Year 6:
Aaaa a Available- for- sale at cost $15,000
plug Market adjustment (1,000)
Aggregate market value $14,000
1,000
Sell Investment R in Year 7:

Cash 8,000
Investment R (original cost) 5,000
Realized gain (I/S) 3,000
Additional notes:
28
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IMPAIRMENT
D. Permanent Impairment
1. Applies to and securities only, not

2. Extreme , such as
3. Must be decline
Sample Impairment Journal Entry:

Realized loss XXX
Investment in bonds XXX
MULTIPLE CHOICE QUESTION 19

Trading Securities: Accounted for at Fair value
19. At year end, Rim Co. held several investments with the intent of selling them in the
near term. The investments consisted of $100,000, 8%, five-year bonds, purchased for
$92,000, and equity securities purchased for $35,000. At year end, the bonds were selling on
the open market for $105,000 and the equity securities had a market value of $50,000. What
amount should Rim report as trading securities in its year-end balance sheet?
a. $50,000
b. $127,000
c. $142,000
d. $155,000
(7751)
Trading Securities Example:

Security Cost Market
Bonds $ 92,000 $105,000
Equity 35,000 50,000
Aggregate $127,000 $155,000
29
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣

20. During Year 9, Scott Corp. purchased marketable equity securities and classified them
as available-for-sale. Pertinent data follow:
Fair value
Security Cost at 12/31/X4
D $36,000 $40,000
E 50,000 30,000
F 10,000 16,000
$96,000 $86,000
Scott appropriately carries these securities at fair value. The amount of unrealized loss on
these securities in Scott’s Year 9 income statement should be:
a. $20,000
b. $14,000
c. $10,000
d. $0
(4568)
Aggregate Market Adjustment Journal Entry:
OCI
Market Adjustment
Additional notes:
Independently answer multiple-choice question 21
30
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣

21. The following information pertains to Smoke Inc.’s investments in marketable equity
securities, classified as available-for-sale:
 At year end, Smoke has a security with a $70,000 cost and a $50,000 fair value. (No
Market Adjustment account exists.)
 A marketable equity security costing $50,000, has a $60,000 fair value on December 31.
Smoke believes the recovery from an earlier lower fair value is permanent.
What is the net effect of the above two items on the balances of Smoke’s Market Adjustment
account for available-for-sale marketable equity securities as of December 31?
a. No effect
b. Creates a $10,000 debit balance
c. Creates a $20,000 credit balance
d. Creates a $10,000 credit balance
(4578)
Smoke Inc. Market Adjustment Journal Entry:
Aggregate Market Adjustment Journal Entry:
OCI
Market Adjustment
Additional notes:
Independently answer multiple-choice questions 22.
31
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣

22. During Year 7, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for
$31,500 as an available-for-sale investment. The market value of this investment was $29,500
at December 31, Year 7. Wall sold all of the Hemp common stock for $14 per share on
December 15, Year 8, incurring $1,400 in brokerage commissions and taxes. On the sale,
Wall should report a realized loss of
a. $4,900
b. $3,500
c. $2,900
d. $1,500
(0978)
Realized Loss Journal Entry:
Cash [$28,000 - $1,400]

Realized Loss
Investment in Hemp
Additional notes:
32
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣

23. At the end of year 1, Lane Co. held trading securities that cost $86,000 and which had a
year-end market value of $92,000. During year 2, all of these securities were sold for
$104,500. At the end of year 2, Lane had acquired additional trading securities that cost
$73,000 and which had a year-end market value of $71,000. What is the impact of these stock
activities on Lane’s year 2 income statement?
a. Loss of $2,000
b. Gain of $10,500
c. Gain of $16,500
d. Gain of $18,500
(8325)
Year 1 Adjustment Entry:

Securities
Unrealized Holding Gain
Year 2 Sale:
Cash
Realized Gain
Security
Year 2 Adjustment:
Unrealized Holding Loss
Trading Securities
Additional notes:
Answer multiple-choice questions 24 and 25
33
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
MULTIPLE CHOICE QUESTIONS 24 - 25

On the day of the transfer, write the individual investment to fair market value. Securities
must always enter their new portfolio at fair market value. For trading securities, unrealized
gains/losses go to the Income Statement. For HTM and AFS, unrealized gains/losses go the
balance sheet as OCl.
Transfer from Trading:

Investment A 5,000
Unrealized gain 5,000
To record value increase before transfer of Investment A when FMV is $8,000
(cost $3,000)
Transfer to Trading:
Investment A 5,000
Unrealized gain 5,000
(cost $3,000)
Transfer from HTM to AFS:

Investment A 5,000
OCI 5,000
(cost $3,000)
Transfer from AFS to HTM:

Investment A 5,000
OCI 5,000
(cost $3,000)
34
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
Items 24 and 25 are based on the following:
Sun Corp. had investments in equity securities classified as trading costing $650,000. On
June 30, 20X5, Sun decided to hold the investments indefinitely and accordingly reclassified
them from trading to available-for-sale on that date. The investment’s fair value was $575,000
at December 31, 20X4; $530,000 at June 30, 20X5; and $490,000 at December 31, 20X5.
24. What amount of loss from investments should Sun report in its Year 5 income
statement?
a. $45,000
b. $85,000
c. $120,000
d. $160,000
(4045)
June 30 Year 5 Transfer (Trading to AFS) Journal Entry:

Unrealized Loss
Investments
25. What amount should Sun report as net unrealized loss on investments in equity
securities in other comprehensive income at the end of Year 5?
a. $40,000
b. $45,000
c. $85,000
d. $160,000
(4046)
December 31 Year 5 Journal Entry:

OCI
Market Adjustment
Additional notes:
35
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
COST METHOD
Cost Method Sample Journal Entry:
Investment A 28,000
Cash 28,000
To record purchase of 2,000 shares @ $14 per share
Cash 2,000
Dividend Income 2,000
To record receipt of $2,000 dividend
Additional notes:
36
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
DERIVATIVES & HEDGES

A. Definitions
1. Derivative : Investment that derives its from some other security

or commodity
 A derivative investment can be either an or a liability
 If you are in a position, that’s an asset. If you are

in a position, that’s a
2. Hedging: Strategy of investing in a for the purpose of ____________

the potential in another security or transaction
B. Non-Hedge Derivatives
1. Record on balance sheet as asset or liability at

2. Report holding gains & losses are on
37
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
FAIR VALUE & CASH FLOW HEDGES

Hedge Derivative Types
A. Fair Value Hedge: Protects against potential loss from the change in the fair market value
of a(n) or a(n)
2. Report unrealized holding gains & losses are on
B. Cash-Flow Hedge: Protects against potential loss from the future cash flow of an asset or
liability
2. Unrealized holding gains & losses on a cash flow hedge depend on whether hedge is
_______________ or
3. Effective cash flow hedge IS counterbalance losses elsewhere. That gain goes
directly to as an item of
4. Ineffective cash flow hedge is NOT counterbalancing a loss. That loss goes directly to
the and included in earnings.
Effective (hedge was profitable and offset derivative loss) Journal Entry:
Investment X 10,000
Other Comprehensive Income (B/S) 10,000
In the period when the loss from the derivate is realized on the income statement:
Other Comprehensive Income (B/S) 10,000
Gain on derivatives (I/S) 10,000
Note: Now the Income Statement shows both the loss and the counter balancing derivative
gain
Ineffective (hedge was not profitable, and did not offset derivative loss) Journal Entry
Loss 3,000
Investment Z 3,000
38
￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣
MULTIPLE CHOICE QUESTIONS 26 - 28
26. Which of the following financial instruments is not considered a derivative financial
instrument?
a. Interest-rate swaps
b. Currency futures
c. Stock – index options
d. Bank certificates of deposit
(8072)
27. If it is not practicable for an entity to estimate the fair value of a financial instrument,
which of the following should be disclosed?
I. Information pertinent to estimating the fair value of the financial instrument
II. The reasons it is not practicable to estimate fair value
a. I only
b. II only
c. Both I and II
d. Neither I nor II
(6455)
28. Which of the following risks are inherent in an interest rate swap agreement?
I. The risk of exchanging a lower interest rate for a higher interest rate
II. The risk of nonperformance by the counterparty to the agreement
a. I only
b. II only
c. Both I and II
d. Neither I nor II
(6454)
39

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KK

Cash, Receivables &

CURRENT ASSETS (流動資産)

C. Bank Reconciliation ― Primary area for exam questions

Work space and additional notes:

Balance per bank statement, 8/31 $18,050

At August 31, Year 2, Apex’s correct cash balance is

Bank Balance, 8/31 $

Independently answer multiple-choice question 2.

2. The following information pertains to Grey Co. at December 31, 20X3:

Checkbook balance $12,000

Cash in checking account $

Adjusting Journal Entry:

Work space and notes:

Independently answer multiple-choice questions 3-6.

Work space and notes:

Poe Inc. had the following bank reconciliation at March 31:

Data per bank for the month of April 20X7 follow:

4. What is the cash balance per books at April 30?

Work space and notes:

5. What is the amount of cash disbursements per books in April?

Unadjusted Cash Balance at 6/30 $

Work space and notes:

DIRECT WRITE-OFF METHOD

B. Direct Write-off Method

1. No entry for bad debts until customer

2. At default, the customer’s account is

Example Journal Entry

Year 1: Accounts receivable

3. Theoretically, the direct write-off method is because of

4. Acceptable under GAAP as long as bad debt expenses are

5. Material bad debt expense requires the

Work space and additional notes:

Remember, there are approaches to the Allowance Method.

Work space and additional notes:

Independently answer multiple-choice questions 7-8.

Credit sales for the year ended December 31 $450,000

Accounts receivable at 12/31 $220,000

Adjusting Journal Entry:

Bad Debt Expense

RESTORED ACCOUNT (RECOVERY)

Allowance for bad debts 300

Accounts receivable 300

Independently answer multiple-choice questions 9-11.

Allowance for uncollectible accounts at 1/1 $30,000

What would be Inge’s uncollectible accounts expense?

Adjusting Journal Entry:

Bad Debt Expense

ASSIGNING, FACTORING & PLEDGING

1. Assignment of accounts receivable normally is done with recourse, i.e., if the

B. Factoring Accounts Receivable: Receivables sold to a factor.

Factoring Without Recourse

Factoring With Recourse

A/R factored / assigned XXX

Answer multiple-choice question 12

Face amount of note $40,000

Accrued interest revenue, 9/30 $

Adjusting Journal Entry:

Receivable from Bank

December 31, 2005:

December 31, 2006

Total interest imputed in this note receivable is

MULTIPLE-CHOICE QUESTION 13 (continued)